ISM: Material and Talent Struggles Eased Slightly in December

Last month’s Institute for Supply Management report showed stable conditions in December for manufacturers and some easing of stubborn labor and material shortages. Timothy Fiore, Chair of the ISM’s Manufacturing Business Survey Committee, said January 4 that manufacturing in the U.S. “remains in a demand-driven, supply chain-constrained environment,” but noted “indications of improvements in labor resources and supplier delivery performance.”

Despite the positive signs, manufacturing remains saddled with shortages and high prices for materials, commodities, and transportation, Fiore said, and surveyed optimism among business leaders dipped slightly from November. The ISM’s December survey noted six positive comments for each cautious comment. The Institute previously recorded a ration of 10:1 positive-to-negative comments in November.

Reflecting those challenges, the ISM’s purchasing manager’s index dipped 2.4 points to 58.7% in December, indicating slower but still substantial growth.

Several of the ISM’s indicators for manufacturing health also fell but remained in growth territory, including its indexes for new orders, production and prices. The new orders index fell 1.1 points to 60.4%, production fell 2.3 points to 59.2%, and the prices index decelerated 14.2 points to 82.4%. All four of the above indexes have grown for the past 19 months straight alongside the overall economy.

Meanwhile, the more-volatile employment index grew 0.9 points to 54.2%, indicating a slight acceleration of growth, sustaining a four month growth trend in manufacturing employment.

In trade and transportation, backlog growth accelerated slightly, exports and imports experienced slower growth, and supplier deliveries continued their long-term slowing trend. Backlogs grew for an eighteenth month, at a slightly faster rate than previously, and supplier deliveries continued to slow despite some improvement. The ISM’s new export orders measure slowed slightly as the index dropped by less than half a percentage point to 53.6%, while the imports index grew by 1.2 points to 53.8%.

Although material hang-ups and hiked prices are a lingering issue for industry, the ISM’s lists of more-expensive and hard-to-source commodities were both notably shorter than they were in last month’s report. The Institute’s report on November listed 37 categories of goods as up in price and 21 categories as in short supply, while the December report listed only 28 categories as more expensive and only 10 as difficult to find.

Two surveyed executives expressed more ease in sourcing materials than previously. A chemical products executive cited their “gut feeling” that “it’s getting easier to source chemical raw materials.” An executive in fabricated metal products said “price increases appear to be slowing.” And a leader at a machinery firm reported that “costs for steel seem to be coming down some.”

A variety of widely in-demand primary goods are still scarce, increasingly expensive, or both. Aluminum, up in price now for 19 months running, has also been in short supply for two months running now. Several steel categories are increasingly expensive while steel itself remained in short supply for a thirteenth month in December. Electrical and electronic components were similarly expensive and scarce.

“We have seen a little relief on steel prices, but they are still very high,” the machinery executive said.